The Bank of Japan published a Working Paper estimating Japan’s trend inflation and its determinants using a trend-cycle Bayesian VAR (BVAR) decomposition. The results indicate that trend inflation remained subdued as the public gradually lowered medium- to long-term inflation expectations following the collapse of the asset price bubble in the early 1990s. The analysis also finds that subdued real income growth, relative to labour productivity and labour supply growth, exerted downward pressure on trend inflation from the 2000s to the early 2010s, when trend inflation was particularly restrained. The paper argues that monitoring medium- to long-term inflation expectations and trends in structural economic factors is important for assessing Japan’s long-run inflation trend. As part of the Bank of Japan Working Paper Series, the paper is circulated to stimulate discussion and the views expressed are those of the authors and do not necessarily reflect the Bank’s.
Bank of Japan 2026-01-30
Bank of Japan working paper estimates Japan’s trend inflation and links long-run weakness to lower inflation expectations and subdued real income growth
The Bank of Japan's Working Paper estimates Japan's trend inflation using a trend-cycle Bayesian VAR decomposition, revealing subdued trend inflation due to lowered medium- to long-term inflation expectations and subdued real income growth relative to labour productivity and supply from the 2000s to early 2010s. The paper emphasizes the importance of monitoring inflation expectations and structural factors for assessing Japan’s long-run inflation trend.